Bloomberg News

Vale to Cut Iron-Ore, Nickel Output as Prices Plunge

October 24, 2008

Cia. Vale do Rio Doce, the world's biggest iron-ore producer and second-largest nickel supplier, said it is cutting output of both metals as demand and prices plunge.

At least 30 million metric tons of low-grade iron-ore output will be cut in Brazil and buying from other suppliers will be stopped, Chief Executive Officer Roger Agnelli said on a conference call today. Rio de Janeiro-based Vale will reduce nickel output by 20 percent in Indonesia and 65 percent in China, and the start of the Goro and Onca Puma projects will be delayed and will open at ``minimal production levels,'' he said.

The worst economic crisis since the Great Depression is curbing demand for metals, including iron and nickel used in steel. South Korea's Posco, the biggest steelmaker in Asia, and China's Maanshan Iron & Steel Co. have cut output. Goldman Sachs Group Inc. analysts in Sao Paulo, headed by Marcelo Aguiar, forecast a 15 percent drop in iron-ore prices next year.

``We won't sell at any price,'' Agnelli said. ``There's major over-supply in nickel.''

The prospect of reduced output from Vale helped to revive nickel price that today reached a five-year low on the London Metal Exchange. Nickel for delivery in three months jumped $650, or 7 percent, to $10,000 a metric ton as of 7:14 p.m. in London, after earlier reaching $8,850, the lowest since July 2003.

Nickel Projects

Nickel disruptions at mining companies including BHP Billiton Ltd. and Xstrata Plc were expected to reduce output by 35,000 tons this year and 11,000 tons next year, according to a Barclays Capital report this month. Vale (VALE5) will continue to produce nickel at lower-cost mines in Canada, Agnelli said.

Vale's $3.2 billion Goro nickel project on the French Pacific island of New Caledonia, originally scheduled to start up this month, will now start operations in January ``to produce at a minimal pace,'' Agnelli said. The mine has capacity to produce 60,000 tons a year.

Onca Puma, Vale's first nickel-mine project in Brazil, will start in October next year instead of March or April, and will initially produce about 4,000 tons a year, compared with capacity of 58,000, Agnelli said.

The pace of developing the company's new alumina projects will be reduced, while the Moatize coal, Salobo copper and Serra Sul iron-ore projects will proceed as scheduled, the chief executive said. Vale continues to consider expansion in the copper and coal industries ``interesting,'' he said.

Chief Financial Officer Fabio Barbosa said that Vale has ``no large projects coming on stream in 2009-10.''

Vale fell 76 centavos, or 3.3 percent, to 22.54 reais in Sao Paulo trading, after earlier dropping as much as 8.5 percent. The shares are down 57 percent this year.

To contact the reporter on this story: Diana Kinch in Rio de Janeiro dkinch1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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